Merkel Offers to Increase Bailout Funds; Spanish Yields Rise

Arthi Gupta
27 Mar, 2012
New York City

German Chancellor offered a concession to increase the size of bailout funds to

[R]2:30 PM Frankfurt – German Chancellor offered a concession to increase the size of bailout funds to €690 billion ahead of the key finance ministers meeting. Spain and Italy sold debt at varying borrowing costs. Retail sales in the UK remained stable in March.[/R]

European indexes pared gains and looked ahead to a meeting of finance ministers scheduled to determine the size and structure of two bailout funds.

The mood in the market improved after German Chancellor Angela Merkel said at a news conference in Berlin today that her government is prepared to consider temporary rescue fund and permanent rescue funds run in parallel, effectively increasing the size of total bailout capital.

She added that permanent bailout will be capped at €500 billion but the temporary fund will be allowed to be in existence till the borrowing nations repay. This will allow the total available capital for bailout to increase to €690 billion.

Spain sold €2.579 billion worth of 3-month and 6-month treasury bills at higher yields while Italy's borrowing costs fell to the lowest in four-months.

A private survey showed that German confidence is estimated to decline in April, however French consumer confidence rose in March.

In Paris trading, the CAC-40 Index declined 12.60 or 0.4% to 3,489.38 and in Frankfurt the DAX Index edged higher 23.19 or 0.3% to 7.104.73.

Italian 10-year bonds yield rose six basis points to 5.09% and yield on similar Spanish government bonds gained three basis points to 5.36%.

Spanish, Italian Bond Auctions

Spain sold €2.579 billion worth of 3-month and 6-month treasury bills at higher yields. Italy sold €3.82 billion of zero-coupon and inflation-linked bonds. Italy's borrowing costs fell to the lowest in four-months.

The Spanish Treasury sold €1.08 billion 6-month T-bills at an average yield of 0.836% compared to 0.764% in the prior auction in February. The bid-to-cover ratio fell to 5.6 from 10.24.

The country also sold €1.5 billion 3-month T-bills at an average yield of 0.381% compared to 0.396% in the previous auction on February 21. The bid-to-cover ratio fell to 3.5 from 4.04.

The Italian Treasury sold €2.817 billion of January 2014-dated zero-coupon notes at an average yield of 2.352% compared to 3.013% at the prior auction on February 24. The bid-to-cover ratio was 1.86 compared to 1.93 in the previous auction.

The nation also sold €1 billion of inflation-linked bonds. The average yield of bonds due on September 2021 was 3.45% compared with 4.61% in the previous auction on October 27 and bonds due on September 2019 had an average yield of 3.06% compared with 3.19% at the last auction on February 24.

The yield on the 2.35% September 2019 BTPei was 3.06% compared with 3.19% at its previous auction Feb. 24, while the yield on the 2.10% September 2021 BTPei was 3.45% compared with 4.61% previously, on Oct. 27.

German Confidence Dips

Germany's consumer confidence is set to drop in April, according to a survey by market research group GfK released today.

The overall indicator is forecasting 5.9 points for April 2012 following a value of 6.0 points in March.

Record prices for petrol and diesel particularly affected the income indicator in March. The index of income expectations fell to 34.3 in March from 41.3 in February.

Separately, French consumer confidence rose in March, data released by statistics office Insee showed.

The consumer confidence index increased to 87 in March from 82 in February.

UK Retail Sales Stable

Retail sales in the United Kingdom remained stable in March, data from a survey by the Confederation of British Industries showed today.

Retailers reporting an increase in sales in March accounted for 33% of those surveyed. An equal amount of retailers reported decrease in sales, leading to a flat balance that suggested that sales on the high street are stabilizing.

Gainers & Losers

Celesio AG fell 2.6% to €14.33 after the pharmaceutical distribution company said fiscal 2011 revenue declined 1.1% to €23.03 billion from €23.28 billion last year. Net profit for the year slumped 98% to €6.1 million from €265.0 million last year.

Compass Group plc declined 2.7% to 650 pence after the contract foodservice and support services company said it expects total revenues in the first-half to grow by about 8.5% from the prior year.

Q-Cells SE dropped 1.9% to €0.26 after the photovoltaic company reported fiscal 2011 sales fell 24.4% to €1.02 billion from €1.35 billion the prior year. Net loss in the period was €845.8 million compared to a profit of €18.9 million a year ago.

Royal Bank of Scotland Group PLC soared 4.1% to 28.88 pence after reports suggested that the UK government is contemplating selling one-third of its 82% stake in the lender to Abu Dhabi.

Singulus Technologies AG soared 6.3% to €2.88 after the German manufacturer of optical disc production lines said fiscal 2011 sales rose 33.2% to €160 million compared to €120.1 million a year ago. Net profit for the year was €5.6 million compared to a loss of €77.9 million the prior-year.

Wolseley plc dipped 0.8% to 2,500 pence after the plumbing and heating products distributor said first-half revenues increased 3% to £6.84 billion from £6.63 billion in 2011. Pre-tax profit for the period surged 28% to £250 million from £195 million last year.